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The U.S. dollar on Wednesday weakened against its major rivals, after an unconfirmed report that China is considering slowing or halting purchases of U.S. Treasurys. The news helped to stoke jitters about holding on to U.S. assets such as government bonds and the greenback, market participants said.

While the dollar index remained down, the greenback spiked against the Canadian dollar and Mexican peso following a report that Canada was increasingly convinced that the U.S. will announce to pull out of the North American Free Trade Association.

What are currencies doing

The ICE U.S. Dollar Index
DXY, +0.52%
a measure of the dollar against a basket of six rivals, shed 0.2% at 92.319, clawing back some of its losses and lifting from session lows, which had put it to the weakest level since around September, according to FactSet data. The dollar gauge, which has been enjoying a modest uptrend, on Tuesday reached its highest level since Dec. 28.

Meanwhile, The WSJ Dollar Index
BUXX, +0.42%
which gauges the greenback against a basket of 16 currencies, was down 0.3% at 85.75, also retracing some of its drop.

The buck spiked against the Canadian dollar
USDCAD, +0.6170%
and the Mexican peso
USDMXN, +0.1205%
before retracing some of these gains. One dollar last bought C$1.2546, up from C$1.2464, and 19.3222 pesos, up from 19.3416 late Tuesday in New York.

The dollar declined against the Japanese yen
USDJPY, +0.15%
last buying ¥111.34, compared with ¥112.65 late Tuesday in New York, marking its highest level since late November.

The euro
EURUSD, -0.7836%
trended higher against the dollar, moving above the psychologically important $1.20 level earlier in the session. However, the pair last traded at $1.1958, still up from $1.1937 the previous day. Britain’s pound
GBPUSD, -0.4752%
was lower at $1.3509, compared with $1.3539.

It is widely accepted that Mexico would suffer the most if Nafta was terminated.

Officials in China, the world’s second-largest economy, are reviewing the country’s foreign-exchange holdings and weighing whether to taper or end its purchases of U.S. Treasurys and other assets, Bloomberg reported on Wednesday.

The report, without naming sources, said the market for U.S. assets, notably bonds, is becoming less attractive and that trade tensions with the U.S. “may provide a reason to slow or stop buying American debt.”

It is unclear whether China plans on following through with a strategy to pull back on bonds. China has historically been among the biggest holders of U.S. debt.

The news had a chilling effect on demand for U.S. assets and the dollar, market strategists and analysts said. The 10-year Treasury note
TMUBMUSD10Y, +0.00%
accelerated its climb in yields to 2.59, but yields retreated somewhat late in the session.

The China report comes a day after the Japanese government said it would trim purchases of government bonds with certain maturities by ¥10 billion ($1.7 billion). That stoked concerns that the BOJ was tentatively commencing a tapering of its easy-money polices, following suit with the European Central Bank.

Earlier in the day, Chicago Fed President Charles Evan said he would prefer to hold off on raising interest rates again until the second half of 2018.

What are strategists saying?

Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said the selloff in the dollar was a “knee-jerk” reaction, with investors selling Treasurys and U.S. denominated assets.

“I’d say one day’s move doesn’t make a dynamic,” Chandler said, referring to the dollar weakness.

Chandler said he isn’t throwing in the towel on his bullish expectations for the dollar to strengthen in 2018, in light of a pickup in economic growth, corporate tax cuts in the U.S. and other expected stimulus measures.

But at the same time “PIMCO founder and bond king Bill Gross is calling for a bond bear market after Treasury yields surge persistently above 2.4%,” said Lennon Sweeting, head of corporate trading and chief market strategist for XE.com. “The notion that bonds are less attractive when but beside other assets seems to be seeping through the market. This gives substance to the theory that the dollar is due for a correction.”

“It does seem that the deck is stacking against the buck, to cap off a flurry of negative news for the dollar.”

What else are people focused on?

The data calendar was rather light on Wednesday morning. Import prices rose 0.1% in December. Wholesale inventories grew 0.8% in December, up from a 0.4% decline in the previous month.

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